Entertainment

FacePal: How Facebook Could Rival PayPal

For a long time, Facebook was a walled garden, not allowing Facebook data to be used or shared on other websites. Last year however, that all changed with the launch of Facebook Connect. Since then, hundreds of websites have adopted the platform to allow users to log in via Facebook and to share information such as their social graph or their location. Facebook continues to advocate and advance the platform, most recently by launching Facebook Connect for the iPhone.

Facebook Connect has massive reach, and Facebook has yet to monetize it. But the confirmation that Facebook is looking at creating a virtual currency may open up the possibility of a radically new business model for Connect. By combining this virtual currency with Facebook Connect, Facebook could be the center of a new Internet marketplace for micro-payments, one no longer reliant on credit card transactions. It could accomplish the original vision of the PayPal founders: to be a universal currency.

Understanding a Facebook Virtual Currency

Virtual currency is nothing new to Facebook - the Facebook app Acebucks has been around for a long time now. But it was never Facebook's official currency, and it could not be used to purchase gifts or items in other Facebook applications. An official one, however, could be used on any Facebook application, including the ones built by Facebook themselves.

By buying the currency through Facebook, the need for multiple credit card transactions in applications vanishes. Instead of requiring credit card purchases to buy virtual gifts, a user would spend virtual currency purchased previously. Other transactions could be done with one click, making people more accepting of spending money on the Facebook website. The transaction fees and increased spending on Facebook could alone bring it a significant amount of revenue.

Facebook Connect's Role

However, a Facebook virtual currency could go far beyond the confines of the website. By combining virtual currency with Facebook Connect, Facebook could be the center of a new Internet marketplace no longer reliant on credit card transactions.

Imagine a person being able to go to the Red Bull website (which uses Facebook Connect), connecting to Red Bull, and then buying a case of Red Bull with a single click that deducts the virtual currency from his or her Facebook account. Donations to any charity could be made with a single connection (even ones under a dollar) and purchases of new features and products could be done via the connect system. The most popular way to pay for things online, PayPal, would have a run for its money simply because it would be easier and cheaper to do transactions via Facebook.

The Paypal Vision Realized

In the early days of Paypal, Peter Thiel and the PayPal cofounders had a sweeping and powerful vision for their company. From a January 2007 piece in Bloomberg:

Thiel had grand ambitions for the company. “PayPal was the new currency for the world economy,” he says. Like many young dot-commers, he believed the Internet would empower the individual. For Thiel, PayPal was all about freedom: It would enable people to skirt currency controls and move money around the globe.

PayPal never became a fully-formed currency: the dollar remains the currency, and PayPal the transaction method. It can't handle micropayments, and transaction fees occur during every exchange (moreso if making international payments). Could Facebook finish where PayPal started by utilizing its enormous platform and Facebook Connect partners?

It's interesting to note that Peter Thiel sits on Facebook's Board of Directors - his knowledge in the space would be invaluable to launching a virtual currency. If Facebook does launch a virtual currency and utilizes Facebook Connect, it has the potential to become a standard in online transactions.

Mashable
is a global, multi-platform media and entertainment company. Powered by its own proprietary technology, Mashable is the go-to source for tech, digital culture and entertainment content for its dedicated and influential audience around the globe.